Market Collapse and Credit Crunch

I have a hard time putting all the responsibility for the stock market/financial market on the Republicans. We were warned by McCain in 2005 and by the Bush administration at least 17 times in the past 8 years of the danger of Fannie Mae and Freddie Mac loan practices. Other warnings go back to as early as 1995. It is not the deregulation of the stock market that has produced this problem. With the exception of the auto industry, our economy has been doing fine! The problem of today is caused by the mortgage industry which is an entirely different animal from the stock market.

I would have voted against the bill. If 700 billion (or less) is put into the market, even as a loan, what do you think will happen? Historically, when congress knows money will be coming back, they spend it before they even have it. I sincerely doubt it would be used to pay off the original debt that was made. So, WE THE PEOPLE would be paying off what could be a trillion dollars (debt plus interest) in financing these bailouts. I do not want this debt on myself or my children. There is too much debt as it is.

I know you are aware that the current situation stems from a lack of liquidity of mortgage loans. If the market could establish a value on this paper, that, by itself would make billions available to the credit situation. Over 90 percent of the loans will be paid back. If the market even allowed a discounted value of 60 cents on the dollar on the current payback due on these mortgages it would likely supply more credit than the bailout bill would provide.

The cornerstone of the collapse has been the Fannie Mae/Freddie Mac debacle. When banks are FORCED to make loans without practical standards, the number of defaults from a purely statistical probability is going to rise. And by federal regulation banks had to make these loans. And Fannie Mae was there to back them. Add the fact you pay your management based on quantity instead of quality. Bang!!! You get what you paid for and required. A massive number of low quality easily produced mortgages. An entirely predictable outcome. And the supporters of these policies have primarily come from the democratic camp.

The traditional standard is the loan/mortgage should not exceed 30 percent of a persons net income after taxes. That became a standard not because of regulation but because it was shown that at this percentage a homeowner in all likelihood would be able to meet his obligation with enough room to allow for bumps down the road. A simple practical and objective standard. This has nothing to do with race, religion, etc. Throwing out quality standards on mortgages has set these homeowners up for a fall. You have not given them affordable housing, you have given them UNAFFORDABLE housing! I'm sorry but many of these people taking these loans have been set up to fail.

Those encouraging “affordable housing” without regard to ability to pay disregarded simple economic and financial management principles should take the responsibility. Add illegal accounting methods by managers in order to obtain their bonus and you create this predictable disaster.

We have killed people with kindness using the resources of our financial industry and then backing these mortgages with a federal company. And it is killing us. The best of intentions, the worst of results.


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Nauseating, tell me again, why haven't we taken out these democrats and had them shot?

"We're all riding on the Hindenburg, no sense fighting over the window seats"-Richard Jenni

"We're all riding on the Hindenburg, no sense fighting over the window seats"-Richard Jenni

In the 1990s, after the Republicans took control of Congress, Phil Gramm was able to pass the Gramm-Leach-Bliley Act which largely deregulated the banking industry and allowed banks to merge with securities firms. John McCain strongly supported and voted for the bill. After that, Gramm slipped an amendment into an omnibus appropriations bill which deregulated the trading of financial instruments and allowed banks and brokers to trade mortgages as if they were stocks and bonds. This opened up the floodgates to massive trading of sub-prime mortgages.

Gramm later left the senate for a top position with UBS, a giant international financial firm which owns banks and investment firms such as PaineWebber. At UBS, Gramm lobbied Congress, the Federal Reserve Bank, and the Treasury Department on behalf of the banks. He sought to have Congress pass a law designed to forbid states from enforcing stronger laws against predatory lending. As a result of Gramm’s efforts, the law forbidding state regulation of banks was passed, and lenders were free to practice predatory lending. Sub-prime mortgages became routine, and the trading of sub-prime mortgages in bulk became a widespread practice on Wall Street. When millions of people defaulted on those mortgages, the economy went into a tailspin.

Now John McCain, one of the Republicans who deregulated the banks and brokerages and enabled this disaster to happen, is running for President. Without any trace of irony, this Republican is shouting out against the lack of bank regulation! This Republican is talking about putting the chief congressional deregulator of banks, Phil Gramm, into the Cabinet as Treasury Secretary. We are being asked to forget about the perennial Republican opposition to bank regulation and to forget about McCain’s role as a deregulator. We are asked to forget that Phil Gramm and other McCain advisors have been powerful lobbyists for the banking industry.

Although it appears to have happened on his watch, Bush had very little control over the current Wall Street fiasco. It all started with President William Jefferson Clinton.

Surprisingly, this information comes from the September 16, 2008 issue of the liberal newsletter,

Democratic President Bill Clinton signed into law the Gramm-Leach-Bliley Financial Services Modernization Act of 1999, which, as Timothy Canova wrote in a recent issue of Dissent, “swept aside parts of the Glass-Steagall Act of 1933 that had provided significant regulatory firewalls between commercial banks, insurance companies, securities firms and investment banks.”

Canova continued:

“Banks were suddenly free to load up on riskier investments as long as they did so through affiliated entities such as their own hedge funds and special investment vehicles. Those riskier investments included exotic financial innovations, such as the complex derivatives that were increasingly difficult for even experts to understand or value.”

This deregulation led to a free-for-all Shadow Financial system motivated by short term profits that became totally out of control. There was no “tomorrow reckoning”, no regard to the unintended consequences of creating a practically invisible, deregulated and highly complex monetary system, a house of cards that ha no financial base to support it.
Who sponsored the bill?

Which party, since Reagan, has clamored for deregulation for business continually?

Which party sponsored the MOST legislation for deregulating business for the last 30 years?

Which party has continually complained about government interference and control of business for the last 30 years?

Do the Democrats deserve some heat for what they've done over the last 30 years? Absolutely.

Do the Democrats share responsibility with the Republicans equally for this disaster? Not a chance.

The following link to the White House describes the history of warnings from the Bush administration to regulate Fannie Mae.

The principle issue is the attraction of the mortgage trade is they retained value as they could always be sold to Fannie Mae or Freddie Mac (GSE's) so they had basically had no risk. This gave them an assumed liquidity. However, legally the government had no obligation to back these mortgages. So overextending the GSE's resources created an eventual crisis as more and more questionable mortgages were made. Particularly when the GSE's no longer had the resources to make the purchases.



The following link gives references and actions taken by Bush and McCain to reform Fannie Mae and Barnie Frank and his refusal to allow it out of committee.


While the Gramm-Leach-Bliley Act was sponsored by the Republicans, after working with the Democrats it passed with over 80 percent approval from both parties. However, the emphasis on liberal mortgage policies to allow more minority participation was primarily pushed by Clinton and the Democrats. That was included after his threatened veto. The bill did however require strict approval of regulatory agencies.


The final bill resolving the differences was passed in the Senate 90-8-1 and in the House: 362-57-15. This 'veto proof legislation' was signed into law by President Bill Clinton on November 12, 1999

Crucial to the passing of this Act was an amendment made to the GLBA, stating that no merger may go ahead if any of the financial holding institutions, or affiliates thereof, received a "less than satisfactory [sic] rating at its most recent CRA exam", essentially meaning that any merger may only go ahead with the strict approval of the regulatory bodies responsible for the CRA.. This was an issue of hot contention, and the Clinton Administration stressed that it "would veto any legislation that would scale back minority-lending requirements."


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